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Venture Corp (VMS) has announced its 2Q15 results that were in line with expectations from the street. However, the results were dimmed by the surge of tax cost this quarter. Nevertheless, analysts still hold bullish sentiments towards the counter.

Double Digit Growth

Source: Revenue of Venture Corp, Financial Times

Revenue for VMS grew by ten percent year-on-year (yoy) to $661 million from $601.1 million. The surge in revenue was on the back of higher shipments and favourable exchange rate movement. For 1H15, revenue rose by a smaller percentage of 6.5 percent yoy to $1,269.6 million which takes up 44 percent of the full-year consensus estimates.

Source: Net Income of Venture Corp, Financial Times

Net profit of VMS jumped 7.5 percent yoy for 2Q15 to $36.1 million from $33.6 million. This was after the higher tax of $6.2 million that increased 65.9 percent yoy, which actually dimmed the profit growth. The tax hike was attributed to the expiry of tax incentives.

Why the Moderate Outlook?

Despite the improving operating environment for VMS, the management of the group holds a moderate growth sentiment. This is due to the softening global economic landscape that affects the outlook of their customers. Nevertheless, it is expected that the three main drivers (stated below) for the firm will continue to the main contributors of growth for VMS.

Industrial products that mainly consist of high-end communications devices have seen a good run this year and this is expected to sustain for the full year. This is also the sector that VMS is able to obtain its tax exemptions from.

Strong growth in the Test & Measurement segment has allowed it to become a significant contributor of revenue to the group. Life Sciences are the main driver of this sector as the margin is high due to the intensive Research & Development.

The budding cloud storage technology has led to the higher demand for its products in Network & Communications and Computer Peripherals & Data Storage segments. VMS is expected to gain from the Merger and Acquisition deal of its client and continue the growing demand for server and storage connectivity.

A Potential Takeover Target?

VMS has a cash and cash equivalent of $329.8 million and a net cash positive of $155 million. This is after the group has declared and paid a dividend this quarter that amounted to $138 million.

Aberdeen Asset Management has pared down its stake in VMS to 15 percent from the original 25 percent. The more segmented ownership structure coupled with the strong balance sheet make the group a viable takeover target for other companies. Furthermore, as a leading company in its sector, VMS is viewed a natural target for takeover by its main competitors such as Foxconn.

Recommendations by Analysts

Source: Analysts Calls for Venture Corp, Financial Times

Calls from the street remain generally bullish towards VMS despite the more cautious outlook of its clients. They are confident that the growth momentum will continue for the group and expect a mid to high single digit growth.

Source: Dividend per Share of Venture Corp, Financial Times

Analysts from Maybank Kim Eng Research reiterated their “Buy” call towards VMS with a price target of $10.70. Based on the five-year average, the group has a dividend yield of 6.78 percent. Potential catalysts such as a stronger economy or a takeover bid launched against it may push up the prices of VMS.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

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